Five views on Moody’s downgrade of China
25 May 17
Asset managers comment on Moody’s decision to lower China’s sovereign credit rating by one notch to A1 from Aa3, with stable outlook.
Sean Taylor, Asia-Pacific CIO at Deutsche Asset Management, said that the firm stayed cautious on any potential credit spread widening in some sovereign-linked sectors that had higher foreign holdings, but he added he also saw some potential buying opportunities.
They include: Chinese financials, such as commercial banks, policy banks, insurance and other leasing companies; commercial state-owned enterprise issuance and local government debt, commonly issued via local government financing vehicles (LGFV).
“We do not expect a huge selloff in the Chinese credit market and the Chinese space should continue to be supported by the robust domestic bid. However, this downgrade, as well as the currently inverted China government bond curve in view of the ongoing deleveraging and tight liquidity, could remain a drag on the overall sentiment, therefore presenting potential buying opportunities upon any weakness,” he said.
“While ongoing progress on reforms is likely to transform the economy and financial system over time, it is not likely to prevent a further material rise in economy-wide debt, and the consequent increase in contingent liabilities for the government,” he added.
